De Beers and Doctors
De Beers, the diamond merchants, and specialists in certain disciplines are wealthy for exactly the same reasons. They both have something that is rare. It De Beer’s case, it is diamonds. In the doctor’s case it is his skills as a physician. I earn a salary way above the average for no reason other than that I am hard to replace. A specialist earns a great deal more, simply because he is that much harder to replace than I am.
I make no apology for making such an obvious observation because clearly at least one journalist in the Dominion Post apparently does not understand this. Every year after the DHB annual reports come out, some journalist writes about high doctor’s salaries, as if this is something we should be horrified about.
“Annual reports for the 21 district health boards show seven clinicians working in the public health system now earn more than $500,000 a year, including two at Wellington Hospital and one at Hutt Hospital. About 60 others earn more than $350,000.”
This is like saying that Ferraris should be cheaper because Toyotas are cheap.
”The average specialist salary in Australia is around $300,000 but specialists in rarer disciplines can command salaries up to $750,000. Australia is our main rival for doctors in the less common specialties. We won’t even mention the salaries commanded in the US. If we wish to retain doctors here, we need to pay these kinds of amounts. Or we could populate our hospitals with Romanian and Ugandan doctors (actually, I have met excellent doctors from both places, but the quality of doctors from these sources is – variable).
Unionists, unsurprisingly, never get this:
“Service and Food Workers Union national secretary John Ryall said increases at the top of the pay scale were indefensible when hospital service workers were facing a wage freeze. Hospital orderlies, security guards, cleaners and kitchen workers picketed hospitals last year about health boards’ offer of a 0 per cent pay increase.
““Our members get pretty annoyed when they see on one hand they’re being told there’s no money and on the other hand people on the top ends of the salary band getting wage increases.””
This ridiculous statement is the equivalent of saying that Ferraris should be cheaper because Toyotas are cheap. It makes no sense at all. 2,500 people queued up to apply for 150 (probably low-wage) jobs last week. How many doctors queued up to replace the paediatric oncologists in Wellington? Exactly zero.
If every Service and Food Worker dropped dead tomorrow from some bizarre virus, they could all be replaced by the end of the week by similarly skilled workers. But if just a handful of specialists in strategic disciplines succumbed to the same virus, the Health service would be severely disrupted. This is not for a moment to suggest that those specialists are somehow “worth more” as human beings than service workers, it is merely to illustrate the economic reality that drives doctor’s salaries.
You can rail all you want at doctor’s salaries but a good specialist in a rare field of medicine is as hard to find as a flawless blue-white 50 carat diamond.
Disclaimer: The MacDoctor does not work in hospitals and has no financial interest in hospital salaries. The MacDoctor, regretfully, does not earn anything like the salaries mentioned above 
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Feb 1 10 11:46 pm
Which is a shame, because if you did earn a salary/income of that level then so would lots of other GP’s and we might not be having the GP crisis that we are currently experiencing in the SI, particularly rural areas.
As it is, through the misguided policy of successive governments I suspect being a GP with a practice is not that good a choice any more – evidenced by the shortages being noticed, and the inability to sell practices in any good time.
Hence we will continue to bleed GP’s to Australia and other medical options, leading to a loss of service or the possible other alternatives you mentioned.
Disclaimer – I am not a GP or in the medical field. You would all be in a lot of trouble if I was
Feb 2 10 8:52 am
It is debateable that diamonds are rare enough to command the prices that they do and that de Beers have very cleverly manipulated the market over the last couple of centuries so as to maintain the illusion that this is so. Their vaults are full of diamonds being held back precisely to maintain this illusion. However 50 carat stones are rare.
The same can be said about certain medical specialities where access to training programs and/or registration of foreign specialists is carefully limited by their Colleges. This creates a ‘controlled’ shortage and hence ensures their Fellows a very comfortable income. This is not the case for most specialities, however the length of training, the hours worked and the responsibilities required in medical work will necessitate higher salaries than most other jobs if suitable candidates are to be attracted to the profession.
Feb 2 10 6:23 pm
In general, the intransigence of certain colleges plays very little part in the shortage of specialists, as the barrier to entry is already too high to make a great deal of difference (seven years of study, two years of highly stressful “training” then five years of more study combined with long, stressful shifts – why would anyone do that to themselves?).
The one place where colleges do make a difference to the shortage is when there is already a natural shortage in a discipline – and they decide to set the New Zealand standard so high that even superman couldn’t jump them. Urologists and Ophthalmologists come immediately to mind here.
Feb 2 10 12:04 pm
Don’t want to question the validity of your argument, but De Beers/Diamonds are not the best analogy. Diamonds are not really that rare – the rarity is carefully controlled by De Beers to ensure that the price is kept high. Also there is clever marketing. In this way De Beers manages to get diamonds to escape the normal supply/demand factors that determine price.
Feb 2 10 6:26 pm
Yes, my analogy is a bit wobbly because DeBeers does hold something of a monopoly. Just pretend we are talking about high-grade gemstones rather than diamonds in general and that is a better analogy.
Feb 2 10 7:56 pm
Ummmnnnnn….. Have you actually said anything diffent to what I wrote?
Feb 2 10 9:50 pm
Once more in English.
Apart from a few colleges such as urologists, the effect of colleges is minimal compared to the effect of the sheer difficulty of becoming a specialist. This is not a difficulty particularly set by the colleges, except in a superficial, academic way, it is the simple practical difficulty of training a specialist.
In the simplest terms I know. Doctors are not rare because we set some arcane process to produce them, they are rare because it is intrinsically hard to become a doctor.
The rarity is not artificially set as for diamonds, there are few doctors because it is hard to become one.
Feb 3 10 8:35 am
medical student numbers are set by Government, and the attrition rate is very low. It is expensive, not intellectually difficult. Look how easily Australia has managed to crank up doctor numbers.
Not many people know it (maybe not even yourself) but doctor numbers are rising at a pretty impressive rate in New Zealand. Specialist doctor numbers have leapt also. You should really do some research.
Feb 3 10 7:08 pm
I am aware doctor numbers being churned out of New Zealand and Australian colleges are increasing. However, this does not detract from the original argument – which was that it is the scarceness of the doctor resource that sets the price.
You should also understand that a doctor who is fresh out of medical school still has a lot of training to go through before s/he is a competent doctor, able to work unsupervised. This means that bumping up the number of graduates takes years to work through the system.
As for the intellectual component, I strongly suspect that the average person simply could not handle the volume of information that you are bombarded with in medical school. The attrition rate is low purely because the places in medical school are deliberately restricted so that only the brightest are taken on.
Feb 4 10 11:56 am
“The attrition rate is low purely because the places in medical school are deliberately restricted so that only the brightest are taken on.”
That’s incorrect. The number is obtained by forecasting future demand and balancing against financial restraints. They don’t look at how many people can maintain a B plus average (in the case of some minorities bminus-b) and set places accordingly.
Feb 4 10 5:49 pm
Yes. The number of places in medical school is determined by financial constraints. But my point was that the attrition rate is low because of those restraints due to selection bias towards the brightest. Tex seemed to be implying that if we lifted the financial constraints anybody with a university entrance qualification could become a doctor. I doubt this very much.
Feb 2 10 11:07 pm
I think the college argument is specious. The issue is getting people to the standard required for specailist, expert practice.
This takes thousands of hours of supervised practice — to the point that one can not only do the procedures required but has seen and dealt with the rare and common means by which things go wrong.
Most trainees take more than five years to get through. In all the colleges half of all candidates fail the oral despite being seen as good and passing a challenging set of written exams. Almost all specailists have failed this exam at least once.
The end product is highly skilled and sought after. Hence the salaries. If they drop, or the standards of colleagues drop, specailists leave.
Disclosure. I take a drop in Salary equivelant to the annual wage to teach trainees as an academic.
Chris´s last blog ..Tumbrils or custard pies?
Feb 3 10 10:09 am
You make a sound argument in your initial blog MacDoctor